The Outsiders Not the Usual Suspects

A quarter of the Fortune 1,000 have selected their HR chiefs from outside divisions, such as legal and finance, reflecting the increasing need for more business-savvy leaders. And for these execs, the job could serve as a springboard to CEO.

Sandy Hofmann cried when she was offered the chief people officer position at her company.

As of 2001, Hofmann had spent most of her career in operations—14 years at IBM and most recently as the head of the Boston business division at Mapics, an Atlanta-based pro vider of software to manufacturers. In this role, she supervised 150 employees and was the first woman on the company's executive team.

"HR had been seen as a barrier to the business. It was not a respected function within the company," says Hofmann, who recently left Mapics to become COO of a Georgia-based interior storage and design firm. "Quite frankly, for a woman who had worked hard to achieve a role within the senior ranks of the organization, it felt like they were offering me this soft and cushy job that they felt women were supposed to do."

So when Mapics CEO Dick Cook asked Hofmann to take on the role of chief information officer and chief people officer, she felt like she was being demoted.

But Hofmann was wrong. Cook, like an increasing number of CEOs, wanted a business-savvy executive to take on the HR role, which until that point had been shared among various midlevel managers throughout the organization. Mapics was going through tough times in the wake of the dot-com bust and needed someone who could apply business metrics to HR.

Today, 25 percent of Fortune 1,000 companies have tapped executives from other divisions—particularly operations, legal and finance—to take on the top HR role, according to the Center for Effective Organizations, a research center in the Marshall School of Business at the University of Southern California.

In some cases, companies are using HR as a steppingstone to the CEO spot, experts say. "HR can be a great development opportunity for line managers," says Claudia Lacy Kelly, global practice leader for the HR practice at Spencer Stuart, a worldwide executive search firm.

However, many companies are tapping business execs to take on HR because they simply can't find business-savvy HR executives.

"Even though everyone talks the talk of being business partners, those HR executives who are actually anticipating the future needs of the business from a strategic and operational point of view are few and far between," says Wendy Murphy, managing partner at Heidrick & Struggles.

As more companies outsource the administrative HR functions within their organizations, while at the same time find it more difficult to recruit and retain talent, the need for business-savvy HR executives is only going to increase, experts say.

"If HR doesn't step up its game and really focus on the business, more organizations are going to look elsewhere to fill these positions," Murphy says.

Born of necessity At many companies, like Mapics, it takes a crisis to expose the need for a business-minded HR executive.

In 2001, Mapics, which had 1,200 employees, was trying to reinvent itself. Hofmann had seen her division cut from 150 to 65 employees. Rather than make deeper cuts, Mapics decided to let employees work from home—a novel concept six years ago.

The initiative would require Mapics to think differently about managing its workforce, and the need for a chief people officer was clear, Hofmann says.

"We were going to have to be more agile and more open with how we shared information with employees since they couldn't just pick up information at the water cooler anymore," she says. "Since I was the one who complained the most about how we were going to support our people in this changing world, I got the chief people officer job."

Three years ago, Roy Vallee, CEO of Avnet, a Phoenix-based worldwide distributor of manufacturing technology products and services, was also targeting an atypical candidate for the top HR spot. Vallee had been struggling with getting HR to focus more on organizational development issues, such as succession planning and performance management, but couldn't seem to find the right person to fill the position.

He thought he found the perfect fit with Steve Church, president of Avnet's electronics marketing division. Church understood Avnet's business and was passionate about workforce management issues, Vallee says. Unfortunately for Vallee, Church didn't want the job.

"I just felt that there had to be someone better out there for the job," Church says. "After all, I had no formal HR training."

Vallee put Church in charge of coming up with a job description and finding the right HR executive. As part of his due diligence, Church spent weeks visiting heads of HR at other companies to ascertain their main challenges, and how they were addressed.

"I met with about 20 of my counterparts at companies like Texas Instruments and General Mills," he says. "And what I realized in those meetings was that I knew more about HR issues than I thought I did."

After eight months of searching for an outside HR executive, Church changed his mind and took the position.

Growing pains Not surprisingly, non-HR executives who come into the top HR job often are met with significant challenges, not the least of which is raised eyebrows from their colleagues.

"There was lot of skepticism inside our own organization, particularly among the board of directors, about why we weren't bringing on an HR expert," Vallee says.

To address this, Vallee took time with the board, as well as members of the HR team, to get their support.

"I explained the risks of bringing someone in from the outside and talked about how Steve understood our business," he says.

Humility helps a lot in these kinds of situations, Church says.

"I remember the first meeting I had with my HR team. They knew and I knew that I didn't know anything about HR," he says. "Rather than hide behind it I just said, `Everyone in this room knows more about HR than I do, so let's get that off the table.' "

In the first several months, Church often went to his team with questions. "There was a lot of me saying, `I don't know the answer to that, but I will go find out,' " he says.

That's why it's essential for outsiders who go into the HR role to have a good team, says Spencer Stuart's Lacy Kelly. "If you don't have those individual pockets of strength, it's not going to work, because HR is quite technical."

Also, executives new to the HR role often become disheartened by the inherent amount of bureaucracy.

Hofmann's key challenge was making the HR team feel like an important part of the organization and focusing them on the company's business objectives.

"At the time, HR felt like a bunch of chumps because everyone was always irritated with them all the time and then they had to lay off a lot of people. But they didn't even know about the layoffs until the day before they happened," she says.

Under Hofmann's leadership, Mapics' HR team started using business metrics to gauge success. They met with line managers periodically to make sure their activities supported the business goals, she says. Those who could not make the transition were asked to leave.

Julie Fasone Holder, corporate vice president of marketing and sales, human resources and public affairs at Dow Chemical, says that one of the biggest challenges she faced when she took over HR two years ago was realizing how different heading up HR is from supervising any other business division.

"You are running a function, which is very different than running a business," she says. "You have to take more of a back seat and keep in mind how what you are doing is enabling business success, rather than driving change."

And unlike marketing or sales, which Fasone Holder had overseen for years, everyone thinks they are an expert in HR, she says.

"Everyone is an employee and most people are leaders, so everyone has an opinion," she says. "It can be hard to forge consensus on people issues."

Bringing business expertise to HR

Despite these challenges, executives agree that the key to non-HR leaders being successful in the field is in trusting their business instincts.

"When I first started, someone said to me, `Remember, you got here because you are a great leader, not because you are a subject-matter expert,' " Fasone Holder says.

"Today I measure everything. I measure overall turnover, turnover of top performers, turnover of new hires, for example. I measure HR expenses as a percentage of gross profit as well as HR expenses as a percentage of operating profits." -- Steve Church, Avnet

Her marketing and sales expertise has been integral in her approach to improving Dow's corporate reputation, both internally and externally, to better recruit and retain employees.

For example, Dow serves its employees just like a company would its customer base—through customization and target marketing. Dow has segmented its organization into corporate, "people leaders"—the 2,500 managers at Dow—and employees.

"We needed to look at who we served and how we served them," Fasone Holder says. The company realized that while it had focused on corporate communications, it hadn't done much to communicate with and respond to the needs of its employees and leaders.

To address this, the company created leadership development curricula for its leaders. It also unveiled an intranet site where employees could access all of their HR tools and customize them according to their needs.

Fasone Holder's marketing approach also has helped Dow refine its recruiting strategy through more succinct messaging. Today on college campuses, Dow recruiters talk about the company's emphasis on sustainability, a buzzword among environmentally conscious college students.

As a result, Dow has been able to keep up with its hiring needs. This year it will hire 4,000 to 5,000 employees, compared with 4,000 last year and up from fewer than 1,000 in previous years.

Just like Fasone Holder used her marketing experience to revamp HR at Dow, Steve Church was able to use his operational skills to instill standards across Avnet's HR organization.

When Church took over HR at Avnet in July 2005, the company didn't have an HR information system outside of North America. "So if you called on an HR manager and asked how many employees we had worldwide, it would take two or three days to get an answer," he says.

Church and his team worked to implement standards and metrics for all HR processes, including compensation, performance management, training and development, and succession planning.

While all of these processes happened on an ad hoc basis four years ago, Church put the operational vigor behind it so HR managers were held accountable for meeting metrics like managers in any other part of the company.

"Today I measure everything," he says. "I measure overall turnover, turnover of top performers, turnover of new hires, for example," he says. "I measure HR expenses as a percentage of gross profit as well as HR expenses as a percentage of operating profits."

Church's eye on metrics and accountability seems to be paying off. Gross profits per employee have jumped from $148,000 in 2005 to $181,000 in 2007.

At Mapics, Hofmann made similar strides by focusing on metrics and automating many HR processes. Under her leadership, Mapics created a self-service Web site so that employees could do benefits administration online and managers could take care of such record keeping as information on new hires.

"Often HR is in the position where expectations are high but they don't have the budget or technology to deliver on those expectations. This can be a rude awakening for an executive who is used to getting whatever resources they need to get the job done." --Tom Darrow, principal, Talent Connections

By making HR more efficient, Hofmann was able to reduce Mapics' HR team from 20 to four, serving 1,200 employees.

"And they were not overworked," she says.

But more important, Hofmann says that the remaining HR staff felt empowered because they were working more closely with the business and felt that they were getting respect. Today, Hofmann is chair of the board of the Society for Human Resource Management's Atlanta chapter, which has 2,400 members.

Seeing firsthand how HR can transform a business is particularly helpful for Hofmann in her role as COO of Closets and More, a Marietta, Georgia-based company with 80 employees that designs, manufactures and installs custom closet and storage products across the Southeast.

"This position requires me to know a bit about everything," she says, adding that HR reports to her. "My time as chief people officer has shown how important it is to be able to see a business with a different lens."

And that's why the fact that outsiders are entering the HR field could actually be a good thing for the profession, experts say. Today, one of the biggest frustrations HR executives face is that other business leaders within their companies don't understand or respect what they do.

"Often HR is in the position where expectations are high but they don't have the budget or technology to deliver on those expectations," says Tom Darrow, a principal at Talent Connections, an Atlanta-based recruiter. "This can be a rude awakening for an executive who is used to getting whatever resources they need to get the job done."

However, as more outside executives enter the HR profession, it might raise overall awareness of how important and difficult this role can be, says Heidrick & Struggles' Murphy.

"This trend isn't all bad for HR professionals," she says. "The more business-minded, great leaders that we can get into the profession, the better off we are."